Ravitch Seeks Better State Budgeting as Price of U.S. Aid

Former New York Lieutenant Governor Richard Ravitch called for U.S. President Barack Obama to issue an executive order to insure coordination among federal agencies of actions affecting local governments. Photographer: Andrew Harrer/Bloomberg

June 25 (Bloomberg) -- Richard Ravitch, who helped steer
New York City out of a fiscal crisis in the 1970s, said the
federal government should track states’ debt and fiscal health
while insisting they improve budgeting and meet obligations such
as pensions as the price of getting U.S. aid.

The former New York lieutenant governor, in an interview
during a Philadelphia meeting of the State Budget Crisis Task
Force he created with former Federal Reserve chairman Paul
Volcker, said, “the federal government ought to put discipline
on the states.”

Ravitch, 79, who advised New York state on the biggest U.S.
city’s financial woes, joined with the 85-year-old Volcker to
create the task force of former government officials in 2011 to
examine U.S. state finances. The panel has criticized New York’s
use of “one-shot” measures to balance budgets and said New
Jersey may require a “Draconian tax increase” to meet pension
obligations.

Referring to the way most governments account for expenses
on an annual basis instead of over multiple years, Ravitch said
the U.S. should tell governors that if “you want our money, you
better start budgeting in accordance with accrual budgeting
instead of cash budgeting.”

Presidential Order

Ravitch also called for President Barack Obama to issue an
executive order, similar to the one establishing a rebuilding
task force after Hurricane Sandy, to insure coordination among
federal agencies of actions affecting local governments.

“There should be some place in the federal government that
measures the impact that a proposed federal law has on state
budgets,” he said.

Pension funding is a deepening challenge for states and
cities after the recession that ended in 2009. In addition to
$3.7 trillion in municipal debt, Moody’s Investors Service
estimates that U.S. localities face more than $2 trillion in
unfinanced retirement obligations.

The Philadelphia meeting focused on the need for greater
cooperation between the federal government and states as
automatic federal spending cuts are under way.

Known as sequestration, the outcome was supposed to be so
intolerable to Republicans and Democrats alike that both sides
would compromise on spending to avert $1.2 trillion in cuts over
nine years. Instead, no accord was reached and reductions began
in March. As much as $85 billion will be withheld for the fiscal
year that ends Sept. 30, forcing service curtailments and
payroll cuts.

Philadelphia Mayor Michael Nutter said sequestration has
resulted in dismissals of housing workers and the elimination of
counseling for homeowners facing foreclosure. The city’s schools
are “literally on the verge of an economic crisis,” the
Democrat said.

School officials had said they would fire 19 percent of the
workforce July 1 if they don’t receive additional funding to
address a $304 million budget gap.

“This is not a sustainable model for cities,” Nutter
said. “The federal government cannot balance its budget on the
backs of cities and local governments.”